Want to find the value of a startup using predicted future cash flows? Use our free DCF valuation calculator!
Eqvista DCF Calculator
Eqvista has created a DCF calculator to help you find your company’s value based on your company’s predicted future cash flows. This calculator is perfect for startups who want to get a rough idea of their company’s value, especially when most startups have yet to generate revenue.
Calculator section & Instructions/Disclaimer
To use the DCF calculator, simply enter your industry, years in business, total revenue, total profit, and future growth rate. The calculator will then produce the total value of your company. It’s important to remember that the value you get in this calculator is only for your reference. Getting a proper valuation done is still the best way to find the value of your company.
Disclaimer: This DCF calculator is for information purposes only. Use of this calculator is at the own risk of the Preparer, and they take full responsibility for the provided inputs, assumptions, and calculations of the report. Eqvista Inc. assumes no responsibility nor liabilities for any consequences from the calculated results and provides no assurances of the applicability or accuracy of the valuation results for your company. Eqvista has no obligation to defend or represent any part of the assumptions or calculations used or results from the business valuation calculator, and should be taken “as is” without warranty of any kind. The results of the valuation calculator do not serve as an independent qualified appraisal or valuation opinion.
Discounted Cash Flow Model for Startup Valuation
The DCF approach rates a company based on its future performance. It’s ideal for a company that hasn’t yet achieved any historical performance. It is not rare for startups to earn no revenue at all during the (pre-)seed stage, while negotiations about equity transfers, ownership percentages, and value begin. The DCF-method is especially useful in this case because it considers future performance rather than the current state of your startup.
What is Discounted Cash Flow or DCF?
Discounted cash flow (DCF) is a valuation method that uses predicted future cash flows to determine the value of an investment. DCF analysis aims to determine the current value of an investment based on future forecasts of how much money it will generate. The idea is based on the time value of money, which states that a dollar paid in the future is worth less than a dollar spent today.
Why is DCF used for startup valuation?
For any corporation, valuing its assets is never simple. The task of assigning a valuation to businesses with little or no revenue or profits and uncertain futures is extremely difficult. It’s usually a matter of valuing mature, publicly traded businesses with consistent revenues and earnings as a multiple of their earnings before interest, taxes, depreciation, and amortization (EBITDA) or based on other industry-specific multiples.
Pros and Cons of DCF Valuation
Although DCf valuation is a highly effective method, it also has certain advantages and drawbacks as well.
Pros of DCF Valuation
If a financial analyst is confident in the assumptions being made, the DCF analysis is the best option. To estimate a stock’s intrinsic value, a discounted cash flow model necessitates a lot of detail, and each detail necessitates an assumption.
- Exceptionally detailed
- Included are all of the company’s primary assumptions
- Determines a company’s “intrinsic” value
- There are no comparable firms required
- Excel can be used to complete this task
- All future predictions about a company are included
- It’s ideal for looking into mergers and acquisitions
- Can be used to calculate an investment’s internal rate of return (IRR)
- Scenarios can be included
- It’s possible to do a sensitivity analysis with it
Cons of DCF Valuation
Despite its merits, the DCF analysis has certain drawbacks. The fundamental disadvantage of DCF analysis is that it is prone to inaccuracies, incorrect assumptions, and overconfidence in determining a company’s true “value”.
- It necessitates a significant number of assumptions
- Prone to mistakes
- Overcomplexity is a weakness of mine
- Changes in assumptions have a big impact
- Overconfidence can emerge from a high amount of detail
- Examines the value of a company in isolation
- Doesn’t consider competitors’ relative valuations
- The terminal value is difficult to determine and accounts for a significant amount of the entire value
- Estimating the Weighted Average Cost of Capital is difficult (WACC)
Important DCF Valuation Terms You Should Know
These are some imperative terms that each valuation expert and the business must know in order get a better clarity about the discounted cashflow valuation:
- Discount rate – The discount rate is the interest rate levied by the Federal Reserve Bank to commercial banks and other financial institutions for short-term loans. The interest rate used in discounted cash flow (DCF) analysis to assess the present value of future cash flows is referred to as the discount rate.
- Growth rate – The percentage change of a specific variable over time is referred to as growth rate. Increase rates are generally used by investors to express the compounded yearly rate of growth of a company’s revenues, earnings, dividends, or even macro notions like GDP and retail sales.
- Terminal value – The value of an asset, business, or project beyond the predicted period when future cash flows can be estimated is known as terminal value (TV). The term “terminal value” refers to the assumption that a company will continue to expand at a constant rate after the forecast period has ended. The terminal value often accounts for a significant portion of the entire assessed value.
- Cash Flow – The movement of money in and out of a business is referred to as cash flow. Inflows are represented by cash received, and outflows are represented by cash spent. Cash flows from operations, investing, and financing is the most common categories of a company’s cash flow.
FAQs on DCF
- What is free cash flow or FCF? – The cash a firm generates after taking into account financial outflows to run its operations and maintain its capital assets is referred to as free cash flow (FCF). To put it another way, free cash flow is the money left over after a company pays its operational and capital expenses (CapEx).
- What is the discount rate in the DCF calculator? – The discount rate is the percentage of your expected return. It is the estimated value of the company beyond the projection period. It is determined by assuming that a company would expand at a consistent pace for a particular amount of time, known as the terminal rate.
- What is the growth rate in the DCF calculator? – A multi-staged discounted cash flow analysis requires the computation of a firm’s terminal value, which allows for the valuation of that firm.
The simplest method is to begin with the most recent Free Cash Flow and then use a single stage with a DCF growth rate.
- What is the terminal value in the DCF calculator? – The terminal value (TV) of a corporation defines its value in perpetuity beyond a predetermined projected period—usually five years. The discounted cash flow model (DCF) is used by analysts to determine the entire worth of a company. DCF incorporates both the projected period and the terminal value.
- Can I use my DCF for an official valuation? – Yes, one can use the dcf method for official valuation since discounted cash flow model (DCF model) is a sort of financial model that uses cash flow forecasting and discounting to arrive at a current, present value for a company. The DCF is unique in that it is widely utilized in both academia and practice. Investment bankers, private equity firms, equity research firms, and “buy-side” investors all use the DCF to value companies.
Need Any Expert Assistance in Valuing Your Startup?
The process of estimating the economic value of an entire company or business unit can be difficult. Company valuation can be used for a variety of objectives, including determining the fair value of a corporation, establishing partner ownership, taxation, and even divorce processes. Our knowledgeable staff is here to assist you. Simply contact us for a no-obligation consultation.